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‘Sing! China’ flames out, leaving STAR CM in the dark

Bamboo Works wrote a column · Apr 8 04:02
‘Sing! China’ flames out, leaving STAR CM in the dark
‘Sing! China’ flames out, leaving STAR CM in the dark
April 8, 2024
6698.HK 6.21 (-9.2%)

The popular talent reality show was temporarily suspended, and its creator’s revenue plunged, after a famous singer criticized it in a video last year
Key Takeaways:
STAR CM fell into the red last year with a 1.6 billion yuan loss after a controversy broke out surrounding its main money-spinner, the “Sing! China” reality show
The company is suing Warner Records China (Hong Kong) for critical remarks made by the late singer Coco Lee in a video that ignited the controversy 

By Lau Chi Hang
To call it a falling star might be an understatement.
STAR CM Holdings Ltd.’s (6698.HK) sudden plunge from grace was on prominent display in the reality show producer’s recently released , which showed it posted a goodwill impairment of nearly 1.2 billion yuan ($165 million) last year after the suspension of “Sing! China,” its key money-spinner. 
That impairment threw the company into the red to the tune of a 1.6 billion yuan loss for the year, marking a sharp reversal from its 86.9 million yuan profit during brighter days in 2022. The reversal came on the back of a major controversy around “Sing! China,” which infuriated Chinese netizens last year and left the show’s future up in the air. We’ll describe that in more detail shortly. 
But on the top line, the brouhaha caused STAR CM’s revenue to tumble 51.2% last year to 427 million yuan from 2022 levels. That, combined with the goodwill impairment and another 168 million yuan in non-related impairments to its financial assets, led to the big loss. 
Auditor disagreement
The drama surrounding “Sing! China” was at the center of STAR CM’s headaches last year, but that wasn’t the end of the story. That’s because the latest financial report included an opinion by the company’s auditor disagreeing with management’s underlying assumptions on its impairment calculations and projections of future cash flows, saying they were not supported by reliable audit evidence. Thus, any future adjustment to the goodwill impairment could affect the company’s final financial performance for last year.
STAR CM is an entertainment company that mainly produces and licenses intellectual property (IP) related to variety shows, as well as for music, drama series and movies. The company only pocketed 161 million yuan in revenue from its variety show business last year, down 77% from 2022, after pulling the plug on “Sing! China” just four episodes into what was supposed to be a 13-episode season.
Much of STAR CM’s earlier rise and its recent fall is directly tied to “Sing! China,” a reality talent show that was an instant hit after its premiere in 2012. However, even before last year’s controversy, the show was already slipping in popularity as audiences tired of its format and copycat programs emerged. Then came the big blow last August, not long after the suicide a month earlier of Chinese American singer Coco Lee.
Shortly after Lee’s death, a recording emerged in which she accused “Sing! China” of engaging in extremely unfair practices. She said that when she raised her concerns, the show’s producers retaliated by bullying her on the show. The show’s production company, which is a subsidiary of STAR CE, came under heavy criticism, and the firestorm intensified as more similar practices were exposed by other netizens.
Yanked from the air
As the scandal made national news, the show’s broadcaster, Zhejiang TV, removed it from its schedule and said it was investigating the matter. STAR CM is also suing Coco Lee’s manager, Warner Records China (Hong Kong), in a case that will go to trial later this month.
There’s no word yet on the fate of “Sing! China,” including if and when it might return to the airwaves. But given the show’s tarnished reputation, the chances don’t look good. Other scandals have had a similar show-stopping effect, from tax evasion scandals that toppled A-list actresses Liu Xiaoqing and Fan Bingbing, to extramarital affairs that had a chilling effect on the careers of actors Wu Xiubo and Wen Zhang.
That means that even if “Sing! China” tries to make a comeback, it’s far from certain it would ever be able to win back the public’s trust.
As we’ve previously noted, “Sing! China” was already slipping even before the big controversy. Its revenue has moved steadily downward from 491 million yuan in 2019, to 325 million in 2020 and 252 million yuan in 2021. Thus, while the Coco Lee incident may have dealt it a premature death blow, some might argue the end was already on the way.
Shrinking market cap     
Despite its fading fortunes, STAR CM still has a bit of fuel left. It had 354 million yuan in cash at the end of last year, and very little debt, with a gearing ratio of 0.4%. But it also burns through substantial cash in the fast-moving show business, as reflected by the fact that its latest cash figure is down 40% from its 588 million yuan in 2022.
We should also note that STAR CM is facing a number of lawsuits in a business prone to such litigation. Those include a claim of 124.4 million yuan by Munhwa Broadcasting Corp. for breach of contract, and a 16.3 million yuan claim for performance service fees from Hummingbird Music. The company has pledge 69.5 million in time deposits against such litigation.
Its rocky business past and uncertain prospects have taken a toll on the company’s stock. STAR CM priced its IPO shares at HK$26.50 apiece, helping it raise HK$328 million ($42 million) when it went public in late 2022. The price initially surged as high as HK$132, giving the company a market value of up to HK$52.6 billion. But it went into reverse after last year’s scandal, falling to a low of HK$5.71, before rebounding slightly to its current level of around HK$ 7.30 and market cap of less than HK$3 billion.
As its stock plunged, STAR CM transferred 236 million shares from the Hong Kong central clearing system (CCASS) to China Merchants Securities Hong Kong, equal to 59.33% of its total shares. That number just happens to be the same amount of stock held by the company’s controlling shareholders, leading some to speculate that those shareholders made the transfers so that they can sell their holdings at any time. Such speculation has further dampened enthusiasm for a stock that has already lost much of its earlier luster.
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